Trump's Trade War: the World-System Perspective

 

The New York Times today posted two interesting graphics about Trump' Trade War (here): The country status (above) and the results ranked by 2024 Imports (below).

From the ranks (above) it seems that he is going after the money, targeting our biggest trading partners. The economic sense of this (if there is any) is Import Substitution Industrialization (ISI) for the US, a strategy typically employed by Global South countries. Basically, price imports so high that home-grown industries will develop to fill the gaps. Unfortunately, building factories and developing an ecosystem of suppliers takes times. In the mean time, prices in the home country (US) go up as are result of tariff expenses being added to list prices (remember when tariffs would be listed on automobile sticker prices).

By the time ISI would have any impact, Trump will be out of office.

Blog Roll: Syria

 

Blog Roll: Iran

 

Iran has been in the news lately after US and Israel bombings. However, the problems for Iran are really historically driven and go back to the immediate aftermath of WWII. I have state-space models of the Iranian economy from 1950 to the present and use the models to help understand Iran's historical development 

HINT: the Iranian economy is an historically driven economy not a Neoclassical Economy. 

Here's a blog roll:

• The Iranian Revolution Still being worked out today.
  
• A Deep Dive into the Iranian State Space Cycles vs. Control
  
• Will Israel and US Attacks Hurt the World-System? Yes
  
• How Does the Iranian Economy Work? Not like a Neoclassical, free-market economy.
  
• What was the Impact of the Iranian Revolution? Elimination of Cycles!
  
• Stabilizing the Iranian Economy Easy but not easy!
  
• Iranian Globalization and Unemployment created the discontent that led to the Iranian Revolution.
• Iran as a Neoclassical Economy US Technological domination!

Further reading:

• Iranian Revolution a series of events that culminated in the overthrow of the Pahlavi dynasty in 1979.

• Strait of Hormuz a strait between the Persian Gulf and the Gulf of Oman. It provides the only sea passage from the Persian Gulf to the open ocean and is one of the world's most strategically important choke points.

• Iran-Contra Affair a political scandal in the United States that centered on arms trafficking to Iran between 1981 and 1986, facilitated by senior officials of the Ronald Reagan administration

• Iran Nuclear Program one of the most scrutinized nuclear programs in the world, has sparked intense international concern.

• Pahlavi Iran the Iranian state under the rule of the Pahlavi dynasty. The Pahlavi dynasty was created in 1925 and lasted until 1979 when it was ousted as part of the Iranian Revolution, which ended the Iranian monarchy and established the Islamic Republic of Iran.

• Iran-Iraq War an armed conflict between Iran and Iraq that lasted from September 1980 to August 1988. Active hostilities began with the Iraqi invasion of Iran and lasted for nearly eight years, until the acceptance of United Nations Security Council Resolution 598 by both sides.

• Iranian Economy a mixed, centrally planned economy with a large public sector. It consists of hydrocarbon, agricultural and service sectors, in addition to manufacturing and financial services, with over 40 industries traded on the Tehran Stock Exchange.

• The White Revolution a far-reaching series of reforms to aggressively modernize the Imperial State of Iran launched on 26 January 1963 by the Shah, Mohammad Reza Pahlavi, and ended with his overthrow in 1979.

• Modernization Theory holds that as societies become more economically modernized, wealthier and more educated, their political institutions become increasingly liberal democratic and rationalist.

• Foreign Policy of the Kennedy Administration The United States foreign policy during the presidency of John F. Kennedy from 1961 to 1963 included diplomatic and military initiatives in Western Europe, Southeast Asia, and Latin America, all conducted amid considerable Cold War tensions with the Soviet Union and its satellite states in Eastern Europe.

• Sharia Law a body of religious law that forms a part of the Islamic tradition based on scriptures of Islam, particularly the Qur'an and hadith.

Why MAGA?

 

Sometimes I think I understand the MAGA Movement, other times I don't. ChatGPT (here) reports that there are a handful of reasons. The best I can say right now is that it is complicated. My favorite explanation, that aligns with historical analysis of the Nazi Movement, is Right-Wing Reactionism. The failure and humiliation of loosing World War I led Germany to Nazism. The failures for the US are not so clear, but let me just explore Economic failures in this post.

Everything seems to have come to a head during the COVID-19 Pandemic which was a strong shock to the US Economy and was handled very poorly by the first Trump I Administration (2017-2021).

MAGA and Big Tech

To me, the alignment of the MAGA movement and Big Tech continues to be surprising. I have worked in Tech all my life because of the intellectual challenges and the ability to get things done (estimating statistical models, specifically) that couldn't reasonably be done on a desktop calculator. I don't find anything about the MAGA movement intellectually challenging but the Tech Bros seem to see MAGA as a way to get things done. What exactly are they trying to get done and, what if anything is the intellectual attraction?
 

Boiler Plate

Notes

The first six indicators in standard scores are taken from the World Development Indicators (WDI). KOF = KOF Index of Globalization, EF = Ecological Footprint, HDI = Human Development Index. 

See the rest of the Boiler Plate here.

Why is it Important to Study Spain?

 

Right now, in the US, there is a lot of anti-Latin American sentiment being stoked by the neoFascist Trump II Administration. I live in the US Southwest have spent a lot of my life doing statistical analysis of Latin America (for example, here). My off-the-cuff explanation for the animosity toward the Southern Border is that Washington DC elites have little understanding or interest in what is happening in the US Southwest. The struggles of dark-skinned Latinos and Native Americans are just of no interest to the White power structure in the US.

Whatever the real reasons for nativist hostility, it would seem to me useful to study the history of the US Southwest starting with the Hapsburg Monarchy after the discovery of the New World by Spain. The map above (from Spain: the Center of the World 1519-1682) shows that the Hapsburg Empire initially controlled the US Southwest and the Spanish influence is evident everywhere in the present. Xenophobic politicians and their supports cannot simply get rid of Spanish culture by harassing Latin American immigrants. It is too deeply entrenched in the Southwest and too widely embraced by Americans living there.

In future posts, I will just reference this post rather than repeating my reasons for studying Spain in the US.

The Decline and Fall of Elon Musk and Steve Bannon

Elon Musk and Steve Bannon, two fellow travelers with the Trump II Administration, have gained a lot of notoriety for embracing pseudo-Nazi imagery and arguing (here) that the US will Decline and Fall for the same reasons that (supposedly) destroyed the Roman Empire: declining birth rates and declining morals. My analysis of the Decline of Rome (here) and that of a lot of historians, says they are wrong and deluded.

Tweaking the George Santana quote a little: Those who deliberately mis-remember the past are determined to repeat it. Because History is not the unbiased record we might wish it to be, it will always be selectively used and misinterpreted for political purposes. On the other hand, public misinterpretations of history offer an opportunity to educate citizens on things they evidently did not learn in school.

According to Steve Bannon (here), everything changed for Elon Musk when the Trump II Administration refused him access to a briefing on China. After that, Musk started to disappear from the Trump circle and appears to be going back to his troubled business interests (Tesla, SpaceX and StarLink). As for Bannon, the Anti-Defimation League (ADL, here) reports his fall starting in 2020, after which he was charged and jailed multiple times.

Evidently, the Trump II Administration prefers political operatives who do not draw too much public attention but still push the racist and draconian immigration policies of President Trump, operatives such as Stephen Miller.

So, where does this leave the analogy between the Fall of Rome and the current problems of the US Empire? The current Barbarian Invasion in the US involves the MAGA movement, the J6 attack on the US Capital, the Trump Administrations, the Proud Boys, the entire Alt-Right, Steve Bannon, Stephen Miller and Elon Musk.

ChatGPT reports that:

..the so-alled "barbarian invasions" were a mix of forced migration, opportunistic conquest, and reaction to Roman decline, rather than aimless destruction. Many of these groups sought to become part of the Roman world, not just destroy it.

The entire Alt-Right is filled with people who want to be in power and want to impose their views on the US. Throughout the Late 20th Century, they have failed. Now is their moment and if they do not succeed, they may well be happy just to destroy the system. 

Binyamin Applebaum, in the NY Times (here), provides an interesting analysis of Donald Trumps role in the growth and potential collapse of the US Empire. When Empires decline, barbarians see their opportunity. Let's hope that the US can stabilize itself after it's Empire has peaked in the same way that Amsterdam or London have. 

 

Magnitude of Trump Shocks

 

It seems that the US (and maybe the World System here) are in for some shocks from the Trump II Administration. Just yesterday, Trump seems to have imposed strong tariffs on every country in the World-System (except Russia) and countries (such as China) have instituted retaliatory tariffs. It's hard to understand why Trump is doing this: tariffs are against economic orthodoxy and against Republican economic free-trade orthodoxy. Maybe he was asleep in ECON 101 or maybe there is no explanation.

Here's another idea: Trump learned to like the botched COVID-19 Pandemic Response at the end of the Trump I Administration (2017-2021) and decided to impose his own Shock Therapy on the US and the World System. For a needy narcissist, it does get everyone talking about him!

The graphic above shows a time plot of Quarterly US GDP residuals from (2005,1) to (2024,1) produced by the USL20 policy model. The largest shock to GDP during this period was the bungled Trump Administration response to the COVID-19 Pandemic.

Can we expect another shock like the COVID-19 Pandemic shock from the Trump II Administration? Time will tell...

Blog Roll

No, a blog roll is not a WWII hair style (Victory Rolls), it's just a list of my blogs and the blogs of other writers I find interesting (see the right-hand column on the web version). I started blogging in 2009 and received a lot better feedback at the start. Now, social media has thrown a pail of cold water on the blog-o-sphere, but things (I hope) are changing. Social media has become a cesspool of political opinions and vented grievances, but that has a use too. I've also become a little disenchanted with academic journals which seem to be more connected to career advancement (I'm retired). So, I will continue blogging. Let me pull my blogs out of the BLOG LIST in the right-hand column (if you are viewing this on the web version) and explain why I have so many.

Maybe it wasn't a great idea to pull out separate topics for different blogs (that doesn't seem to be the preferred choice of bloggers), but reading a jumble of topics seemed tiresome, so I split out the following themes:

• Random Noise (this blog) is mostly just a collection of intellectual curiosities without statistical proof (doesn't that describe most academic journals?). At least none of my writing here has been peer reviewed (censored). In any event, peer review is about to be taken over by Artificial Intelligence (AI) so you can do your own reviews of my writing.
• Facts, Fictions and Forecasts I devote FFF mostly to World-System forecasts, that is, countries of interest in the World-System and the World System itself (the WL20 model). I use techniques similar to the Economy Now app of the Atlanta Federal Reserve but create alternative scenarios similar to those used by the IPCC Emission Scenarios. I also do not limit myself to GDP, Inflation or CO2 emissions but construct forecasts and scenarios of anything I find interesting and have data.
• World-System Conjectures The Conjectures are also mostly statistical analyses of historical systems. Data are mostly drawn from the World Development Indicators, the Maddison Historical Statistics, the historical statistics of individual countries and my dissertation on Germany.
• Random Variation In RV, I write about Dynamic Component Models (DCMs) and other statistics techniques (Hierarchical Linear Models, HLMs). The DCM models are a generalization of Stock and Watson (2012) Diffusion Indexes and uses a modification of the dse program written in the R programming language. Most model code is available here.
• Random Stock Walker a blog devoted to stock market forecasts (I'm not sure the stock market can be forecast but I do test each stock index with a Random Walk Model).
• Economic Bubble Machine A blog devoted to explaining economic bubbles such as the Great Depression (actually, the bubble was the Roaring Twenties).

I have other blogs out there and I usually post interesting blog articles on social media. 

Markets Won't Save Us: A Proof

 

Jeff Bezos has recently made changes to the Washington Post (WaPo) editorial policy to emphasize "free markets and liberty" (here). Sorry Jeff, "free markets" won't save us (no matter how much the WaPo writes about them) and here's the proof.

But first, I'm reading an excellent book by Quinn Slobodian titled Globalists: The End of Empire and the Birth of Neoliberalism. I haven't finished it yet, but I would recommend downloading the Kindle version (yes, this gives some money to Mr Bezos but I appreciate Amazon); it's an easy read on your phone while your are waiting somewhere for the future to  emerge. The book goes into the entire history of Neoliberalism (not just the US version) and Neoliberalism is all about markets. Basically, the European Neoliberal argument is that the economy is too complex to understand with simple mathematical models (the Limits-To-Growth Models or the Neoclassical Economic Growth Model or the DICE model) so we have to write laws protecting self-organization markets, the only reasonable way we know to control the Economy. Unfortunately, markets won't control both the Economy and the associated Environmental Systems to include the Demographic system. Here's the proof.

Let's start with the simple Kaya Identity (directed graph version above) used by the IPCC (see the Notes below). If we add employment markets, commodity markets, energy markets and carbon markets we get the directed graph at the beginning of this post. We don't have markets for global temperature or population (see my prior post here). There is nothing in the full market system that controls global temperature to make sure it will not exceed some tipping point and make the Earth unlivable. However, temperature change will happen gradually and begin having negative effects on population via the dashed Malthusian Feedback loop in the original directed graph. Parts of the Earth will become unlivable deserts and flooded coastal areas (with sea level rise). Increases in global temperature will increase forest fires and make affected wooded areas unlivable or at least uninsurable.

Many people, some of whom read my posts, think that Malthusian Crises can never happen or that Technological innovations will allow us to adapt to all Environmental crises (TechnoOptimism). Technological fixes require some drastic changes to the Kaya coefficients in the directed graph above. And, the coefficients of models are expected to change slowly (how quickly will all-electric vehicles be adopted?)

The coefficients e, q, e, and t are parameters in the model and will have to change rather quickly to avoid Environmental Tipping Points. TechnoOptimist assertions can be tested using the Kaya Identity. I'll leave that to you to work out the math as an exercise. You have the tools now.

Notes

Starting with the Kaya Identity also disproves the Neoliberal assertion that the Economy is too complex to be understood. The Kaya Identity is true by definition: if you add more people (N) to a SocioTechnical system you will eventually increase employment (L) which will increase output (Q) which will increase energy use (E) which will increase CO2 emissions and finally raise global temperature (T). If you don't accept the Kaya Identity, plug in some numbers to a program I have written (here) and run the program. Or, plug the parameter values into the Kaya Identity and do a back-of-the-envelope calculation (see more discussion here). To understand Technological change, modify the parameter values. Remember, the Kaya Identity is a model not the real TechnoSocial system. Yes, the real system cannot be understood with arm-chair speculation; models are all that we have.

The Kaya program (here) is very general and can be used to "prove" the  TechnoOptimism position. But, do you really believe that growth can continue forever on a finite planet? This is the argument for colonizing Mars, but that won't work either. There won't be enough space ships for the exponentially growing population to escape from the over-crowded planet.

If markets won't save us, what will? My best guess is that we will continue to hope that markets will save us but in the end it will be Malthusian Crises that control the Kaya System--a topic for a future post. For the time being, you can experiment with the Malthusian Controller here.

You might still not be convinced that markets don't control the SocioEconomic system. Here are a few more proofs.

Let's just focus on commodity markets in the directed graph above. 

Since markets are assumed (by economists) to adjust instantaneously without delays, we can reduce this part of the expanded Kaya Identity to the directed graph above.   All we have done is to modify the L-Q parameter slightly. And, since markets must be stable, (1-pq) < 1.0. In other words, we have increased the impact of labor on production. What this means is that, if markets do anything and if markets are stable and if markets adjust instantaneously, markets increase growth rates slightly. It is a line peddled by Neoliberalism and will probably be emphasized on the WaPo editorial page.

The directed graph above adds a shock, X, to the reduced market model. 

And, as we have found out with the US Egg-Price Shock, instantly adjusting markets leave prices elevated until the shock is over.  Markets do not control shocks. On the other hand, it's not that Economic Planning could have done much about the Bird Flu Pandemic or COVID-19, for that matter.